Disinflation process to be slow, protracted: RBI Guv Shaktikanta Das

“While our inflation projection for the current financial year 2023-24 is lower at 5.1 per cent, it would still be well above the target. As per our current assessment, the disinflation process is likely to be slow and protracted with convergence to the inflation target of 4 per cent being achieved over the medium-term,” Das said in a speech at the Summer Meetings organised by Central Banking, London, UK on Tuesday. Based on this expectation of inflation and with a view to assess the impact of past rate actions, the central bank decided on a pause in the April and June 2023 monetary policies, he said.

The Governor, however, reiterated that the pause in rate hikes in April and June monetary policies was not a pivot and also not a definitive change in policy direction.

“Recognising that explicit guidance in a rate tightening cycle is inherently fraught with risks, the MPC (Monetary Policy Committee) has also eschewed from providing any future guidance on the timing and level of the terminal rate,” he said.

Last week, the RBI, for the second consecutive monetary policy, left the repo unchanged at 6.5 per cent.

The central bank has raised the repo rate by 250 basis points (bps) between May 2022 and February 2023 to check inflation.

“The cumulative impact of our monetary policy actions over the last one year is still unfolding and yet to materialise fully,” the Governor said.

He said that the RBI’s approach towards maintaining the stability of the Indian financial system is integral to the conduct of monetary policy as financial instabilities can undermine economic growth and impede monetary policy transmission.

“We recognise that the likelihood of financial turbulence would be high if there is no price stability. This reinforces our belief in the complementarity of monetary policy and financial stability in the long run,” the Governor highlighted.

Talking about the growth, the Governor said the country’s economy displayed exemplary resilience post-pandemic and rebounded strongly from a contraction of 5.8 per cent in FY2021 to a growth of 9.1 per cent in FY2022 and 7.2 per cent in FY2023. He expects real GDP to grow by 6.5 per cent during the current financial year. India will remain among the fastest-growing large economies in 2023, Das added.